Stopping and starting a superannuation income stream
Stopping and starting a superannuation income stream
There are rules as to whether you are able to stop and start a superannuation income stream. The rules vary, depending on whether you are receiving:
- an account-based super income stream
- a non-account-based super income stream
- a transition-to-retirement income stream.
If the rules allow, you can fully or partially commute a super income stream to:
- stop or reduce an income stream
- purchase another income stream
- take the resulting lump-sum benefit in cash
- roll it back into the super system.
If you commute your super income stream and afterwards decide to make further contributions to super, you will be able to do so only if you are either:
- under 65 years old
- over 65 and gainfully employed on at least a part-time basis.
'Gainfully employed on at least a part-time basis' means during a financial year you are gainfully employed for at least 40 hours in a period of not more than 30 consecutive days.
In order to commute an account-based super income stream, you must meet one of the following two requirements:
- you have received the minimum income stream payment prior to the commutation
- if it is a partial commutation, the account balance of the income stream immediately after the commutation is equal to or greater than the minimum income stream payment, reduced by any income stream payments you have already received in the financial year.
The minimum income stream payment or requirement to maintain a minimum account balance after partial commutation does not apply to a commutation that:
- results from the death of the member
- results from the death of a reversionary beneficiary
- is for the sole purpose of
- paying a super contributions surcharge liability
- paying an entitlement of a non-member spouse under a payment split
- meets the rights of a client to return a financial product under the cooling-off period provisions in the Corporations Act 2001.
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The minimum income stream payment must be made before the commutation is calculated, using the following formula:
Minimum annual amount x Days in payment period
Days in financial year
The 'minimum annual amount' for an account-based income stream is the minimum payment amount in the financial year, calculated using the formula in schedule 7 of the Superannuation Industry (Supervision) Regulations 1994 (SISR).
The 'days in payment period' is the number of days in the period:
- beginning on 1 July in the financial year (or on the commencement day of the income stream, if the income stream commenced during the financial year)
- ending on the day that the commutation is to take place.
The 'days in financial year' are the number of days (365 or 366) in the financial year in which the commutation takes place.
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ASIC's MoneySmart website has more information on account-based pensions.
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If you wish to stop or commute a non-account-based super income stream, you are generally restricted to commutations made:
- to pay a super contributions surcharge debt
- to pay an entitlement of a non-member spouse under a payment split to ensure a payment can be made to give effect to a release authority or transitional release authority
- on the death of the member or of a reversionary beneficiary.
You may also stop or commute a non-account-based super income stream if the monies are used to purchase a new non-account- based super income stream.
There are minimum income stream payment requirements to be met if a non-account-based super income stream is to be commuted. The requirements do not have to be met where the commutation:
- occurs on the death of the member or a reversionary beneficiary
- is for the sole purpose of
- paying a super contributions liability
- paying an entitlement of a non-member spouse under a payment split
- meets the rights of a client to return a financial product under the cooling-off period provisions in the Corporations Act 2001.
The method for calculating the minimum income stream payment for a non-account-based pension that is paid for only part of a year is contained in regulation 1.07B of the SISR.
If you receive a transition-to-retirement income stream, it can only be stopped or commuted to cash in limited circumstances, such as when you:
- reach your preservation age and permanently retire
- reach 65 years old
- cash an unrestricted non-preserved benefit
- pay a super contributions surcharge liability
- pay an entitlement of a non-member spouse under a payment split
- ensure a payment can be made to give effect to a release authority or transitional release authority
A transition-to-retirement income stream can also be stopped or commuted upon the death of the member.
You may also stop or commute a transition-to-retirement income stream, but not to cash, if:
- the monies are used to purchase a new transition-to-retirement income stream
- the income stream is rolled over or transferred within the super system - for example, to return a super benefit to the accumulation phase.
Transition-to-retirement income streams are account-based super income streams and, in the event of commutation, the minimum income stream payment amount requirements must be met. Lump sum payments made as a result of commutation (where an entitlement to pay a lump sum exists) do not count towards the 10% upper limit on total annual payments.
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Your personal circumstances and super fund returns are unique, so we recommend you seek professional advice before making decisions about your super.
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What to read next
For more information, refer to Transition to retirement - information for superannuation professionals (NAT 15258).
Last Modified: Wednesday, 8 August 2012
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